The issuer, its “persons discharging managerial responsibilities” (“PDMRs”) and their “persons closely associated” (“PCAs”) all have certain important obligations under MAR. A central obligation is naturally for the issuer to draw up the list over PDMRs and PCAs. Now, setting aside the kinship underbrush analysis, this article will focus on the legal entities (typically companies) category of PCAs (“PCA entity”).
The MAR (Art. 3(1)(26)) legal entities PCA definition is meandering and the ESMA Q&A Q7.7 (23.06.2022 update considered) is not very clarifying. In short, a PCA entity exists when the issuer’s PDMR (or an individual PCA, to such PDMR):
1. directly or indirectly controls the entity;
2. has had the entity set up for his benefit;
3. has substantially equivalent economic interests to the entity;
4. takes part in or influences the entity, to transact in the issuer’s instruments.
Fulfilling any of the above 4 points results in a PCA entity classification.
Notably, none of the above includes mere cross-directorships.
Neither MAR nor ESMA Q&A provide substantive leads on the interpretations of the above. It is thereby also important to bear in mind that different member states can differ slightly in the application of the above.
Requisites 1-3 are related, since they all basically relates to the economical/owner interest in the entity – whereas requisite 4 stands out as more related to typically being in a PDMR position in the entity, having specific influence over certain transactions.
Requisite 1 should in most cases be easy and sensible to determine. A majority of voting rights is thereby a quite universal principle applied by most countries. An effective, yet deemed “indirect” control, might typically materialize differently in various contexts and countries. Typically, it could take the form of a pyramid structure (e.g. company A owning 51% in company B, with company B owning 51% in the entity), multiple voting rights, shareholders agreements etc. Different countries rely on different national definitions of “control”, but a common denominator is typically that when one controlling party (or several, pursuant to some agreement) in effect can exercise a majority in the target; that is clearly “control”. Close to a majority with the remaining shareholders being scattered might reasonably also be a situation which is hit by requisite 1. Difficulties may however arise when seeking to determine in a particular country how to apply the situation when an entity has no majority owner or maybe even no clear ultimate beneficial owner (UBO). Such examples could include when the ownership is quite scattered. It might in this context be interesting also to follow the common practice in the member states concerning these edge cases, thereby also noting what role the EU 4th Anti-Money Laundering Directive might play (including its 25% threshold to determine that a person is a UBO).
Requisite 2 appears linguistically, both in terms of plain English and in terms of legalese, to principally take aim at the beneficiary of a trust or a foundation. (A possible edge case which might fit into requisite 2 could be situations of piercing the corporate veil, when a company has been formed purely as the executive organ of the owners to protect such owners against imminent liability etc.)
Requisite 3 is even less obvious. Certain elaborated (circumvention) schemes, synthetic participations, profit sharing arrangements and/or possibly some very extreme employee stock ownership plan can be conceived to possibly be included.
Requisite 4 is cryptic. Questions had been raised concerning the interpretation of the initial notorious passage of Art. 3(1)(26): “the managerial responsibilities of which are discharged by a person discharging managerial responsibilities or by a person referred to in point (a), (b) or (c)”. When simply reading that language, it can be concluded that it typically concerns the issuer’s PDMR (or an individual PCA) also being in a PDMR position in the entity. ESMA Q&A has however also sought to clarify this further. Reading it in context, ESMA states it should be read to cover cases where the issuer’s PDMR (or PCA individual) takes part in (or influences) decisions of the (PCA) entity to transact in the issuer’s instruments. It hence basically aims at when a PCA entity trades issuer’s securities. In terms of groups, it is hard to see that this situation could occur in a subsidiary, but very easy to see that it could occur in a parent, or even in any company (directly or indirectly) holding any shares in such underlying entity. Regardless, to avoid even the risk of the entity becoming a PCA entity, the individual should ideally be cut off from the possibility to vote and even to participate in the discussion concerning such transactions. A recusal from such a board meeting is at least in some member states deemed sufficient.
The conclusion would be that in most cases it is quite clear if the entity is a PCA entity. Still, there are quite some situations, especially in case of complex corporate structures and/or family relations, where the legal situation is unclear, and where careful analysis and expert advice is required.
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